ADT 2011 Annual Report Download - page 230

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Guarantees (Continued)
The changes in the carrying amount of the Company’s warranty accrual from September 24, 2010
to September 30, 2011 were as follows ($ in millions):
Balance as of September 24, 2010 ................................. $57
Warranties issued ............................................. 24
Changes in estimates .......................................... (5)
Settlements ................................................. (25)
Balance as of September 30, 2011 ................................. $51
Warranty accruals for businesses that have met the held for sale criteria are included in liabilities
held for sale on the Consolidated Balance Sheets and excluded from the table above. See Note 3.
14. Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts
receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of
cash and cash equivalents, accounts receivable and accounts payable approximated book value as of
September 30, 2011 and September 24, 2010. The fair value of derivative financial instruments was not
material to any of the periods presented. See below for the fair value of investments and Note 12 for
the fair value of debt.
Derivative Instruments
In the normal course of business, Tyco is exposed to market risk arising from changes in currency
exchange rates, interest rates and commodity prices. The Company uses derivative financial instruments
to manage exposures to foreign currency, interest rate and commodity price risks. The Company’s
objective for utilizing derivative financial instruments is to manage these risks using the most effective
methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative
financial instruments for trading or speculative purposes.
For derivative instruments that are designated and qualified as hedging instruments for accounting
purposes, the Company documented and linked the relationships between the hedging instruments and
hedged items. The Company also assessed and documented at the hedge’s inception whether the
derivatives used in hedging transactions were effective in offsetting changes in fair values associated
with the hedged items. These hedges did not result in any hedge ineffectiveness for the years ended
September 30, 2011, September 24, 2010, and September 25, 2009.
All derivative financial instruments are reported on the Consolidated Balance Sheet at fair value
with changes in the fair value of the derivative financial instruments recognized currently in the
Company’s Statement of Operations, with the exception of net investment hedges for which changes in
fair value are reported in the cumulative translation component of accumulated other comprehensive
loss to the extent the hedges are effective. The ineffective portion of the hedge, if any, is recognized in
the Consolidated Statement of Operations. The derivative financial instruments and impact of such
changes in the fair value of the derivative financial instruments was not material to the Consolidated
Balance Sheets as of September 30, 2011 and September 24, 2010 or Consolidated Statements of
Operations and Statements of Cash Flows for the years ended September 30, 2011, September 24, 2010
and September 25, 2009.
2011 Financials 127